COMPETITIVE ADVANTAGE

“anything that a firm does especially well compare to

rival firms.”
When a firm can do something
that rival firms cannot do…
is the favorable position an organization seeks in order
to be more profitable than its rivals.
 BENCH MARKING
"Improving ourselves by learning from others."
is a comparative method where a firm finds the best
practices in the area ……..
and then attempts to bring its own performance in
that area in line with the best practice.
Benchmarking is the process of improving
performance by continuously identifying,
understanding, and adapting outstanding practices
found inside and outside the organization.
Distinctive competence (uniqueness)
refers to some characteristic of a business that it
does better than its competitors. Because the
business is able to do something better than
other businesses
are the combination of the best practices and
technical skills that increase the
competitiveness of an organization.
 Organizational appraisal
• is the process of monitoring an
organization's internal environment to identify
strengths and weaknesses that may influence
the firm's ability to achieve goals.
 Methods and Techniques
Value Chain Analysis
Quantitative Analysis
Historical analysis
Industry standards
Benchmarking
• value chain analysis is a strategy tool used to
analyze internal firm activities. Its goal is to
recognize, which activities are the most
valuable
Historical Analysis Comparison with one’s own
performance over a period of time.
Comparison can be done to see improvements
and pitfalls.
• Qualitative Analysis It can be used to express
the tenor of corporate culture, ability to
absorb knowledge or the level of morale
among employees.
• Industry Norms Comparison with
competitors. More specially, comparison with
strategic groups.
 Strategic advantage
• Analysis looks at positive points that
differentiate our business from competitors
• Strategic advantage analysis would look what
unique strengths the company has, and
whether these strength are likely to be
sustainable, that is long-term.
 A service blueprint
• service blueprint is a diagram that visualizes the
relationships between different service components
— people, props (physical or digital evidence), and
processes
• is an operational planning tool that provides
guidance on how a service will be provided,
specifying the physical evidence, staff actions,
and support systems / infrastructure needed
to deliver the service across its different
channels
• END- unit 2
 Environmental Analysis:
Components - internal & External
Organizational appraisal
Strategic advantage analysis
SWOT analysis
ETOP
Synergy
GAP Analysis
Porter's Five Forces Model of competition
Factors driving industry change
Strategic groups
McKinsey's 7s Framework
Distinctive competitiveness
Competitive advantage
Value chain
Bench marking & service blue printing
• S.A.P. The areas are:
• Ø Product ion or Operation
• Ø Finance or Accounting
• Ø Marketing or Distribution
• Ø Human Resource & Corporate Planning
• Ø Research & Development
• Grand strategy matrix is the instrument for
creating alternative and different strategies for
the organization.

BASED ON TWO DIMENSIONS:

Competitive position
Market growth
Quadrant I (Strong Competitive Position and
Rapid Market Growth)
Quadrant II (Weak Competitive Position and
Rapid Market Growth)
Quadrant III (Weak Competitive Position and
Slow Market Growth)
Quadrant IV (Strong Competitive Position and
Slow Market Growth)
 Quadrant I (Strong
Competitive Position and Rapid
Market Growth)
Unit -3
 Strategy Formulation Generic Business Level Choice of Alternatives &
(Corporate level Strategy) Strategies Functional Strategies
EFE Matrix
Integration
Cost leadership IFE Matrix
Diversification
Differentiation and focus strategy. CPM
Mergers & Acquisitions
Business Process Re-engineering (BRP) SWOT Matrix
Takeover and Core Process Reengineering (CPR) SPACE Matrix
Strategic alliances
BCG Matrix
Joint strategies
IE Matrix
Turnaround
Grant Strategy Matrix and
Divestment and
Factors affecting strategic choice
Liquidation strategies
 Corporate level strategy:
A corporate-level strategy is when a business
makes a decision that affects the whole
company
 INTEGRATION
Merger of two or more firms resulting in a new
legal entity
Vertical integration Horizontal integration
 Vertical integration : company takes
complete control over one or more
stages in the production or distribution
of a product.

Types of vertical integration strategies

Forward integration
Backward integration
Balance integration
Forward integration
If the manufacturing company engages in sales
or after-sales industries .This strategy is
implemented when the company wants to
achieve higher economies of scale and larger
market share.

Balanced integration
means a company controls all of these
components, from raw materials to final
delivery

Backward integration
When the manufacturing company starts
making intermediate goods for itself or takes
over its previous suppliers, Firms implement
backward integration strategy in order to
secure stable input of resources
Horizontal integration
Horizontal integration is the acquisition of
business activities that are at the same level in
the similar or different industries.
is a strategy where a company acquires, mergers
or takes over another company in the same
industry value chain.
 DIVERSIFICATION

a corporate strategy to enter into a new market

or industry
when a business develops a new product or
enters into a new market.
to enter lines of business that are different from
current operations.
• Two types of diversification:
• Related
• Unrelated
 Instance of related diversification: Johnson & Johnson

Consumers products

Baby care Wound care

Women's care Medicines

Skin and hair care Oral care

Nutritionals Vision care
 Instance of unrelated diversification: General Electrics

Aviation Healthcare
Appliances

Financial services
Consumer products Energy
 MERGERS

It is a form of integration
a company joins with the other company to
form a new organization.
It is a combination of two or more companies
into a single company where one survives and
the other loses their corporate existence.
 Way of Merger
• By purchasing of assets
• By purchase of common shares
• By exchanging of shares for assets
• By exchanging of shares for shares
 Acquisition
Acquisition refers to a situation where one firm
acquires another
An acquisition is when one company purchases
most or all of another company's shares to
gain control
 Strategic Alliance

A strategic alliance is a relationship between two or

more entities that agree to share resources to
achieve a mutually beneficial objective.
A strategic Alliance is an agreement for cooperation
among two or more independent firms to work
together toward common objectives.
"two or more organizations involved in mutually
advantageous relationships that maintain all
participants as separate corporate entities"
• Bharti Airtel and Samsung
• ICICI and VODOFONE
 Benefits of strategic alliance

• Shared risks
• Ease of market entry
• Shared knowledge and expertise
• Synergy and competitive advantage
 Turnaround strategy

strategy followed by an organization when it

feels that the decision made earlier is wrong
and needs to be undone before it damages
the profitability of the company
 Why Turnaround Strategy?

Declining market share

Negative profit
Falling gross and Net margins
Increasing cost
Declining performance measures
Low turnover
Miss management
 Divestment Strategy
Selling a division or part of an organization
Divestment is a form of retrenchment strategy
used by businesses when they downsize the
scope of their business activities
 When …..?
• MARKET SHARE TOO SMALL.
• AVAILABILITY OF BETTER ALTERNATIVES.
• NEED FOR INCREASED INVESTMENT.
• LACK OF STRATEGIC FIT.
• LEGAL PRESSURES TO DIVEST.
 Liquidation Strategy

The Liquidation Strategy is the most unpleasant

strategy adopted by the organization that
includes selling off its assets and the final
closure or winding up of the business
operations.
TOYOTA
This strategy-formulation tool summarizes and
evaluates the major strengths and weaknesses
in the functional areas of a business
 IFE Matrix can be developed in five
steps:
1. List key internal factors as identified in the
internal-audit process
2. Assign a weight that ranges from 0.0 (not
important) to 1.0 (all-important) to each
factor Assign a 1-to-4 rating
3. major weakness (rating = 1), a minor
weakness (rating = 2), a minor strength
(rating = 3), or a major strength (rating = 4).
4. Multiply each factor’s weight by its rating
5. Sum the weighted scores for each variable
It is a tool that compares the firm and its rivals and
reveals their relative strengths and weaknesses.

Weight: Each critical success factor should be assigned a

weight ranging from 0.0 (low importance) to 1.0 (high
importance). The number indicates how important the
factor is in succeeding in the industry
Rating: The ratings in CPM refer to how well companies
are doing in each area. They range from 4 to 1, where 4
means a major strength, 3 – minor strength, 2 – minor
weakness and 1 – major weakness.
Critical Success Factors: Critical success factors
(CSF) are the key areas, which must be performed
at the highest possible level of excellence if
organizations want succeed in the particular
industry
Score & Total Score: The score is the result of
weight multiplied by rating. Each company
receives a score on each factor. Total score is
simply the sum of all individual score for the
company. The firm that receives the highest total
score is relatively stronger than its competitors.
 CPM Table
Company A Company B Company C
Critical Success Weight Rating Score Rating Score Rating Score
Factor

Brand 0.13 2 0.26 3 0.39 1 0.13

reputation
Level of product 0.08 4 0.32 3 0.24 1 0.08
integration

Range of 0.05 3 0.15 1 0.05 2 0.10

products
Successful new 0.04 3 0.12 3 0.12 3 0.12
introductions

Market Share 0.14 2 0.28 4 0.56 4 0.56

Sales per 0.08 1 0.08 2 0.16 3 0.24

employee
Low cost 0.05 1 0.05 3 0.15 4 0.20
structure
Variety of 0.07 4 0.28 2 0.14 2 0.14
distribution
channels

Customer 0.02 2 0.04 4 0.08 1 0.02

retention
Superior IT 0.11 3 0.33 4 0.44 4 0.44
capabilities
Strong online 0.15 3 0.45 3 0.45 4 0.60
presence

Successful 0.08 1 0.08 2 0.16 1 0.08

promotions
Total 1.00 - 2.44 - 2.94 - 2.71
 The Strategic Position and Action
Evaluation (SPACE) Matrix
It analyzes four different areas….
Two internal to the company and two external
that will represent four quadrants in a graphic.
The purpose of this matrix is to situate the
company in one of these four quadrants and
to frame a strategy
According to which quadrant results- about
what type of strategies a company should
follow:
Conservative
Aggressive
Defensive or
Competitive
• Defensive position - an unattractive industry, the
company lacks competitive products and financial
resources
• Competitive position - attractive and relatively
unstable environment, the company has some
competitive advantage
• Conservative position - a stable industry with low
growth rate and financially stable company
• Aggressive position - an attractive and relatively
stable industry, the company has a competitive
advantage and it can protect it.
 Matrix represent

• Two Internal Dimensions (financial position

[FP] and competitive position [CP])

• Two External Dimensions (stability position

[SP] and industry position [IP]).
 Steps ….
• Select a set of variables to define financial position (FP),
competitive position (CP), stability position (SP), and industry
position (IP).
• Assign a numerical value ranging from +1 (worst) to +7 (best) to
each of the variables that make up the FP and IP dimensions.
Assign a numerical value ranging from -1 (best) to -7 (worst) to
each of the variables that make up the SP and CP dimensions.
• Compute an average score for FP, CP, IP, and SP by summing the
values given to the variables
• Plot the average scores for FP, IP, SP, and CP
• Add the two scores on the x-axis and plot the resultant point on
X. Add the two scores on the y-axis and plot the resultant point
on Y
 Boston Consulting Group (BCG)
Matrix is a four celled matrix (a 2 * 2 matrix)
developed by BCG, USA.

It provides a graphic representation for an

organization to examine different businesses in
it’s portfolio on the basis related market share
and industry growth rates.
 Stars (high growth, high market share)-
business units having large market share in a fast growing
industry.
Cash Cows (Low growth , high market share)
business units having a large market share in a mature, slow
growing industry
Question Marks (Low growth, low market share)-
business units having low relative market share and located in a
high growth industry
Dogs (high growth, low market share)
businesses having weak market shares in low-growth markets.
 Strategic choice

Strategic choice refers to the decision which

determines the future strategy of a firm. It
addresses the question "Where shall we go"
 Factors affecting strategic choice

• Environmental constraints
• Internal organizations and management power
relationships
• Values and preferences
• Management's attitude towards risk
• Impact of past strategy
• Time constraints- time pressure, frame horizon ,
timing of decision
• Information constraints
• Competitors reaction
The objective is to become the lowest-cost
producer.
• Strategy used by businesses to create a low cost
of operations. The use of this strategy is
primarily to gain an advantage over competitors
by reducing operation costs below that of others
in the same industry.
• strategy companies use to increase efficiencies
and reduce production costs below the industry
average
Strategic plan under which a firm concentrates
its resources on entering or expanding in a
narrowly defined market segment
A company’s products or services are
differentiated from that of its competitors.
This can be done by delivering high-quality
products or services to customers or
innovating products or services.
Ferrari cars and Rolls-Royce
Business process reengineering (BPR)

’game-changer to any business’

Reengineering involves completely rethinking of
existing business methods, work procedures,
and attitudes toward customers and suppliers.
Issues in strategy implementation:
Methods of resource allocation:
BCG Matrix, GE 9 Cell Matrix and Market Life Cycle-Competitive
strength Matrix

Structural implementation - Organizational design and change, Project, Procedural, Bahavioural, and
Functional & Operational Implementation.

Company: Corporate Culture, Values, Power and politics.

• “You want your people to run the business as
if it were their own.”

• “In most organizations, the top performers are

paid too little and the worst performers too
much.”
is the process by which strategies and polices
are put into action.

Purpose is to make the strategy “action-

oriented.”
• ability to allocate resources, design structures,
formulate functional policies, identify
leadership styles etc.
• Successful strategy formulation does NOT
guarantee successful strategy implementation

• Strategy Implementation —more difficult to

“do” something Strategy Formulation —easier
to say “going to do it”
• Institutionalization of strategy: Communication and Acceptance
• Formulation of Action Plans:The action plans may be in respect of purchasing new
machinery, appointing additional personnel, developing a new process, etc.

• Project Implementation.
• Procedural Implementation:Formation of a company companies act, 1956
,Licensing Procedures
• policy, 1991,FEMA Requirements -Foreign Exchange Management Act, 2000
• Import and Export Requirements ,Competition Act, 2002

• Resource Allocation: Financial resources, Physical resources, Human resources

• Technological resources

• Structural Implementation.
• Functional Implementation.
• Behavioral Implementation.
 ST Strategies

• ST Strategies use a firm’s strengths to avoid

or reduce the impact of external threats. This
does not mean that a strong organization
should always meet threats in the external
environment head-on.
• WT Strategies are defensive tactics directed
at reducing internal weakness and avoiding
external threats
 SO Strategies

• use a firm’s internal strengths to take

advantage of external opportunities.
 WO Strategies

• WO Strategies aim at improving internal

weaknesses by taking advantage of external
opportunities.